Most of us haven’t truly thought about inflation. In all honesty, most of us probably don’t fully understand what the term means. Inflation is a complex issue driven by local and international forces such as COVID-19 restrictions and the Russia-Ukraine conflict. In a nutshell, inflation is a sustained increase in the general level of prices in an economy over a period of time. It usually occurs due to increases in production costs such as raw materials and wages.
Generally speaking, when inflation climbs so does the cost of living. Products and services get more expensive as a result of the change in supply and demand factors. This can get painful if salaries are not following suit and compensating for the change in these costs. For example, a little over a decade ago a serving of chicken rice might have cost us about S$2, now it’s more likely to go for S$3.50 depending on where you go. This is the result of changing costs of the products needed to make chicken rice over time, and these costs impact all aspects of life - commodities, services, supply chain, etc. The increase in all these elements decides our overall cost of living.
Recently, Singapore has seen* a rise in inflation, experiencing the highest rates in the last decade, and there is a good chance that it will spike up to 4% later in 2022 before settling down again. That said, it’s not all doom and gloom. Singapore’s economy is most likely to rally* towards the end of the year due to domestic demand and the easing of COVID-19 restrictions.
With inflation predicted to climb to about 4% in Singapore before it (hopefully) settles in 2023, it’s a good time to consider investing your savings so the inflation does not eat away at it. A key step to take at this stage would be to look for savings and investment-linked plans (ILPs) that can help protect you against certain financial losses and fluctuations. For example, using a flexible endowment plan that can help you save and invest money toward a key goal – a holiday, a postgraduate degree, etc. That way you don’t have to worry about how inflation will impact any uninvested savings earmarked for such goals instead. Other financial insurers allow you to invest in different funds managed by established and trusted fund managers rather than having to go out and find a fund yourself.
At the end of the day, it’s important to place your savings where they will be the most good for you in the future. Keep in mind that some funds or investment options may allow either investment from your Supplementary Retirement Scheme (SRS), Central Provident Fund (CPF) or other accounts and funds you are eligible to use, but be mindful of fund limits and restrictions from your own schemes.
But aside from protecting yourself through savings and investment insurance plans, there are other places to invest your money to safeguard it against spiking inflation rates:
SSBs are safe and flexible investments recommended by the Monetary Authority of Singapore. Anyone over 18 years of age can buy these bonds with a minimum investment amount of S$500. This makes it an affordable investment, especially for beginners or those not sure how to go about expanding their investments. The maximum investment an individual can hold is S$200,000, with interest payment returns every 6 months.
Corporate bonds provide another option for investment but should be approached with some experience to fully understand the different credit ratings and methodologies behind the investments. As a general rule of thumb, credit ratings provide guides for credit qualities. In other words, the higher the rating the stronger the bond issuer and the higher the value of the bond.
Investing in company stocks can be a long-term investment alternative that could help you stow your savings in secure locations. It’s important to know what you’re doing, however, and to not simply invest because someone tells you to. The stock market can be a tricky place to navigate, so make sure you do your research and properly understand the fluctuations that come with ‘playing the stock market’.
Another place you can invest is a ‘fund’. If you’ve watched shows like Billions you’ll probably have a rough understanding of this concept, but investing in a fund isn’t as simple as all that. After all, life is no television show.
There are different types of investment funds which have different purposes and invest in different sectors - equity funds, fixed-income funds, balanced funds, and market funds. Handing over your money to investment funds is a good way to avoid having to navigate the stock market without the financial knowledge of how things work, just make sure you choose a reliable, trustworthy fund with a manager you know you can trust.
In the traditional sense of the word, a commodity is any physical goods that can be bought, sold or traded in markets. Buying commodities is another way to hedge against inflation and invest your money in the world economy.
If you can’t afford to buy a commodity—a gold bar, for example, can be expensive for an individual to purchase outright—you can invest in a fund or trust that invests in these commodities on your behalf.
REITs, or real estate investment trusts, are all about physical properties. These trust funds pool investments from multiple investors and use them to buy commercial, industrial or residential properties.
The income from these properties - either as rentals or resale - is then used to pay out dividends to their investors. Bricks and mortar are always a good way to shore up your savings against inflation because even if inflation sends prices skyrocketing, you are still holding a tangible asset.
Inflation is a natural process in the economy. Normally it’s nothing to worry about, but on occasions, like when a pandemic or a war interferes with supply chains and global trade, inflation can take a turn for the worse and impact us more critically. Staying ahead of the inflation rates by investing your money in bonds, commodities or funds will allow you to shore up your savings and weather any severe changes to the inflation rates. Whatever you do, however, it’s always important to look into secure financial planning and investments, making sure you have a backup plan in place should things go sideways. If you're not sure where to get started, leave your details below for a no-obligation consultation with one of our financial planners.
*Singapore core inflation could peak at 4% in Q3 before easing in late 2022: MAS, The Business Times, published April 2022
Investing in Singapore Savings Bonds | mas.gov.sg
S&P Singapore Corporate Bond Index | spgglobal.com
This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of HSBC Life (Singapore) Pte. Ltd. and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at the time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.
Information is correct as at 1 February 2023.
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